Friday, September 19, 2014

Interjurisdictional Immunity and Paramountcy - Matthew 6:24. No one can serve two masters: except for Canadian banks

Banking is a federal matter.

Accordingly one might think that banks should be subject to federal regulation so all Canadians deal with banks on the same basis. That thinking would, as a result of Canada's odd constitution be wrong.

Apparently banks are supposed to serve two masters...

Bank of Montreal v. Marcotte, 2014 SCC 55:

C.The Doctrine of Interjurisdictional Immunity Does Not Apply

[62]The Banks argue that the doctrine of interjurisdictional immunity renders the CPAinapplicable to their credit card activities. Interjurisdictional immunity operates to prevent laws enacted by one level of government from impermissibly trenching on the "unassailable core" of jurisdiction reserved for the other level of government. Under s. 91(15) of theConstitution Act, 1867, Parliament enjoys exclusive jurisdiction over banking. The Banks submit that the applicability of the relevant provisions of the CPA to banks would impair the core federal banking power. We disagree.

[63]While interjurisdictional immunity remains an extant constitutional doctrine, this Court has cautioned against excessive reliance on it. A broad application of the doctrine is in tension with the modern cooperative approach to federalism which favours, where possible, the application of statutes enacted by both levels of government. As such, this Court in Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3, held that the doctrine must be applied "with restraint" and "should in general be reserved for situations already covered by precedent" (paras. 67 and 77). We note that there is no precedent for the doctrine's application to the credit card activities of banks.

[64]In the rare circumstances in which interjurisdictional immunity applies, a provincial law will be inapplicable to the extent that its application would "impair" the core of a federal power. Impairment occurs where the federal power is "seriously or significantly trammel[ed]", particularly in our "era of cooperative, flexible federalism":Quebec (Attorney General) v. Canadian Owners and Pilots Association, 2010 SCC 39, [2010] 2 S.C.R. 536 ("COPA"), at para. 45. Therefore two related questions must be asked: First, does the power to regulate disclosure of conversion charges lie at the core of federal jurisdiction over banking? Second, if so, do the provisions of the CPA at issue significantly trammel or impair the manner in which the federal power can be exercised?

[65]To answer these questions, the only provisions that need be considered are ss. 12 and 272 of the CPA, which deal with the disclosure of charges requirement and the remedies for breach of same. The overall regulatory regime established by the CPA, namely the enforcement role granted to the Office de la protection du consommateur, is not at issue. All that need be considered is whether the provisions that found a civil suit brought directly by consumers are applicable under the interjurisdictional immunity doctrine.

[66]Setting aside the first question for the moment, whether either of these provisions touches on the core of the federal banking power, the answer to the second question is clear: neither provision can be said to impair that federal power. Even if the provisions are characterized broadly as regulating bank lending or foreign currency conversion, they still fail to satisfy the impairment step of theCOPA test. While lending, broadly defined, is central to banking and has been recognized as such by this Court in previous decisions, it cannot plausibly be said that a disclosure requirement for certain charges ancillary to one type of consumer credit "impairs" or "significantly trammels" the manner in which Parliament's legislative jurisdiction over bank lending can be exercised. Although the s. 12 disclosure obligation and the s. 272 civil remedies relate to bank lending, these provisions do not in any way impair any activities that are "vital or essential to banking" such that Parliament might be forced to specifically legislate to override the provincial law (Canadian Western Bank, at para. 86). Requiring banks to inform customers of how their relationship will be governed or be subject to certain remedies does not limit banks' abilities to dictate the terms of that relationship or otherwise limit their activities. Similarly, even if foreign currency conversion is accepted as being part of the core of the federal banking power, imposing a broad disclosure requirement for charges relating to currency conversion in no way impairs that power. As such, the CPA does not impair the federal banking power and the doctrine of interjurisdictional immunity is not engaged.

[67]This conclusion fits with prior decisions of this Court that have dealt with interjurisdictional immunity in the context of the federal banking power. The following comments of this Court in Canadian Western Bank are particularly applicable to the principle that s. 91(15) of the Constitution Act, 1867does not give Parliament exclusive jurisdiction over all aspects of lending or currency conversion by banks:

However, it must be repeated that just because Parliament can create innovative forms for financing does not mean that s. 91(15) grants Parliament exclusive authority to regulate their promotion. . . . The rigid demarcation sought by the banks between federal and provincial regulations would not only risk a legal vacuum, but deny to lawmakers at both levels of government the flexibility to carry out their respective responsibilities. [Emphasis in original; para. 89.]

[68]The Banks argue for exactly the type of amorphous, sweeping immunity that was rejected in Canadian Western Bank.Banks cannot avoid the application of all provincial statutes that in any way touch on their operations, including lending and currency conversion. Provincial regulation of mortgages, securities and contracts can all be said to relate to lending in some general sense, and will at times have a significant impact on banks' operations. However, as this Court concluded in Canadian Western Bank, this is not enough to trigger interjurisdictional immunity. The provisions of the CPA do not prevent banks from lending money or converting currency, but only require that conversion fees be disclosed to consumers.

[69]The present appeals are distinguishable fromCOPA. In addition to the directly relevant precedent on the federal aeronautics power, COPA also involved provincial statutory provisions that amounted to a blanket ban, under certain conditions, on an activity that fell within the core of the federal aeronautics power. As the Court pointed out, applying these provincial provisions would force Parliament to pass legislation to countermand the provincial rules, failing which the activity could not occur at all. The same is not true for the CPA provisions at issue here. The disclosure and remedy provisions do affect how banks carry out a certain aspect of their activities, but as discussed above that effect does not amount to impairment. It is hard to imagine how these provisions would force Parliament to pass legislation to countermand them, failing which it would be impaired in its ability to achieve the purpose for which exclusive jurisdiction over banking was conferred. For these reasons, we conclude that the Court of Appeal was correct in holding that interjurisdictional immunity is not engaged.

D.The Doctrine of Paramountcy Does Not Apply

[70]The Banks additionally argue that ss. 12 and 272 of the CPA are inoperative with respect to banks as a result of the doctrine of federal paramountcy. Paramountcy is engaged where there is a conflict between valid provincial and federal law. In such cases, the federal law prevails, and the provincial law is rendered inoperative to the extent of the conflict. Conflict can be established by impossibility of dual compliance or by frustration of a federal purpose: Canadian Western Bank, at para. 73. The Banks argue that the provisions of the CPAfrustrate the purpose of the federal banking scheme.

[71]Even where it is possible to simultaneously comply with both federal and provincial laws, situations will arise where requiring compliance with a provincial law will frustrate the purpose of a federal law. An example of this is Law Society of British Columbia v. Mangat, 2001 SCC 67, [2001] 3 S.C.R. 113. Mangatdealt with a federal scheme that empowered non-lawyers to appear for a fee before immigration tribunals for the purpose of promoting informal, accessible and expeditious hearings. By contrast, a provincial law prohibited such paid appearances by non-lawyers. Even though forced compliance with the provincial law would not result in abreach of the federal law (as appearances by non-lawyers were not mandatory under the federal scheme), it would nonetheless clearly frustrate the federal purpose.

[72]In Mangat, it was clear that the provincial law frustrated the purpose of the federal law as it precluded people from ever using the federal scheme for paid non-lawyers. However, care must be taken not to give too broad a scope to paramountcy on the basis of frustration of federal purpose. The mere fact that Parliament has legislated in an area does not preclude provincial legislation from operating in the same area, as stated by this Court in Canadian Western Bank, at para. 74:

The fact that Parliament has legislated in respect of a matter does not lead to the presumption that in so doing it intended to rule out any possible provincial action in respect of that subject. As this Court recently stated, "to impute to Parliament such an intention to 'occup[y] the field' in the absence of very clear statutory language to that effect would be to stray from the path of judicial restraint in questions of paramountcy that this Court has taken since at leastO'Grady" (Rothmans, at para. 21).

[73]As the party seeking to invoke paramountcy, the Banks bear the burden of proof and "must first establish the purpose of the relevant federal statute, and then prove that the provincial legislation is incompatible with this purpose":COPA, at para. 66. The Banks allege frustration of two federal purposes. The broader federal purpose, they say, is to provide for exclusive federal banking standards. The second, narrower, purpose is to ensure that bank contracts are not nullified even if a bank breaches its disclosure obligations.

[74]Before dealing substantively with the arguments, it is worth providing a brief overview of the relevant federal and provincial regimes. Consumer banking products are federally regulated under theBank Act, the Cost of Borrowing (Banks) Regulations, SOR/2001-101, and the Financial Consumer Agency of Canada Act, S.C. 2001, c. 9, the latter creating the FCAC, the federal regulator. Consumer protection is provincially regulated in Quebec under the CPA by the Office de la protection du consommateur. TheCPA sets out general rules governing all consumer contracts, but also sets out rules relating to contracts of credit specifically in Division III of Chapter III of Title I of the Act ("Division III").

[75]Both Division III of the CPA, and the federal Bank Actand Cost of Borrowing (Banks) Regulations, provide detailed rules relating to the manner in which credit card charges must be computed, claimed, and disclosed. The two sets of rules are consistent with one another. Both regimes provide that "credit charges" (or "cost of borrowing" under the federal scheme) must be disclosed as part of the "credit rate" (or "interest rate" under the federal scheme). The FCAC has held that conversion charges are "non-interest charges" under the federal scheme which is consistent with their being "net capital" for the purposes of the CPA. The provisions regulating the grace period and the date on which interest begins to accrue are likewise consistent.

[76]In light of our conclusion above that the conversion charge is net capital, none of these specific provisions in Division III of the CPA need be considered in the context of the paramountcy issue. The Group B Banks complied with both the provincial requirements found in the CPA and the federal requirements. The Group A Banks complied with the disclosure requirements of Division III of theCPA, but, as will be discussed below, failed to disclose the conversion charges at all in breach of s. 12, theCPA's general disclosure provision that applies to all consumer contracts. The consumers claim redress against the Group A Banks under s. 272 of the CPA for their breach of s. 12. Both rules are applicable to consumer contracts generally. Under s. 12, "[n]o costs may be claimed from a consumer unless the amount thereof is precisely indicated in the contract." Section 272 provides consumers with various civil remedies for breaches of the Act, including specific performance, reduction of the consumer's obligation and rescission or annulment of the contract, as well as for punitive damages.

[77]We now consider the two federal purposes put forward by the Banks.

[78]First, the Banks say that a purpose of the federal scheme is to provide for "clear, comprehensive, exclusive, national standards applicable to banking products and banking services offered by banks", citing the preamble to the Bank Act. The preamble was enacted in 2012 (S.C. 2012, c. 19, s. 525), shortly before the Court of Appeal rendered its decision in this matter, meaning the proposition that it can be used retroactively as an interpretive aid is dubious (see e.g. United States of America v. Dynar, [1997] 2 S.C.R. 462, at paras. 45-46). However, even if we assume that a purpose of theBank Act is to provide for exclusive national standards, such a purpose would still not be frustrated by ss. 12 and 272.

[79]Sections 12 and 272 do not provide for "standards applicable to banking products and banking services offered by banks", but rather articulate a contractual norm in Quebec. Merchants must bring costs to the attention of consumers and, failing to do so, cannot claim them. This requirement does not amount to setting a standard applicable to banking products. Rather, it is analogous to the substantive rules of contract found in the CCQ, the operation of which the Banks do not dispute. If the Banks' argument amounts to claiming that the federal scheme was intended to be a complete code to which no other rules at all can be applied, that argument must also fail as the federal scheme is dependent on fundamental provincial rules such as the basic rules of contract. Just as the basic rules of contract cannot be said to frustrate the federal purpose of comprehensive and exclusive standards, if indeed such purpose exists, so too do general rules regarding disclosure and accompanying remedies support rather than frustrate the federal scheme.

[80]It is arguable that a provincial requirement that conversion charges be calculated or disclosed in a different manner than that required by federal law would engage paramountcy. If the province provided for a different grace period, or a different method of interest computation or disclosure, it could perhaps be said to either result in an operational conflict or undermine a federal purpose of exclusive national standards (assuming, without deciding, that such a purpose could be made out). Currently, however, the federal and provincial standards are the same. Duplication is not, on its own, enough to trigger paramountcy. In Bank of Montreal v. Hall, [1990] 1 S.C.R. 121, La Forest J., at p. 151, quoted with approval the following passage from Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161, at p. 190, written by Dickson J. (as he then was) on the concurrent application of duplicative federal and provincial legislation:

. . . there is no true repugnancy in the case of merely duplicative provisions since it does not matter which statute is applied; the legislative purpose of Parliament will be fulfilled regardless of which statute is invoked by a remedy-seeker; application of the provincial law does not displace the legislative purpose of Parliament.

[81]For these reasons, even if a purpose of exclusive federal standards could be made out, it cannot be said to be frustrated in this case. Sections 12 and 272 cannot be said to frustrate or undermine a goal of exclusive national standards. This conclusion finds additional support in the conclusion reached in the companion case Amex regarding non-consumer cardholders, whereby those cardholders were awarded restitution under the receipt of a payment not due provisions found in the CCQ.

[82]The Banks also assert a second, narrower, purpose of the Bank Act: to ensure that bank contracts are not nullified even if a bank breaches its disclosure obligations. Sections 16 and 988 of the Bank Act provide that a contract is not invalid solely by reason of being contrary to a provision of the Act. The Bank Act instead provides for criminal sanctions against banks that breach their disclosure obligations. This, say the Banks, evinces a federal intention to preserve banks' contracts and to provide for criminal sanctions instead of civil remedies such as punitive damages against banks that breach their disclosure obligations. This argument must also fail.

[83]With respect toss. 16 and 988, it is enough to note that the remedy sought by the Plaintiffs is a reduction of how much they paid to the Banks, not the nullification of their contracts or even of the specific clauses at issue in these appeals. A clause or contract that is nullified is deemed to have never existed, requiring both parties to restore to the other any prestations received (art. 1422 of the CCQ). However, in the case of the Group A Banks, the conversion charge was never disclosed in their contracts, meaning it was not imposed pursuant to any clause in those contracts. As a result, reimbursement of the conversion charges cannot be said to result from or be indicative of nullification. Rather, it was chosen by the trial judge as an appropriate remedy for the Banks' breach of theCPA. In other cases, paramountcy might indeed render s. 272 inoperative to the extent it is applied to nullify a contract on the basis of a breach of a CPA provision that is similar to a provision of the Bank Act. However, that is not the issue before the Court. At this time, we need only consider whether paramountcy prevents s. 272 from being applied so as to order restitution of the conversion charges and punitive damages.

[84]With respect to the Banks' broader argument that provinces cannot provide for additional sanctions on top of federal sanctions, in our view this argument is similar to their argument respecting interjurisdictional immunity, whereby they seek a sweeping immunity for banks from provincial laws of general application. There are many provincial laws providing for a variety of civil causes of action that can potentially be raised against banks. The silence of the Bank Act on civil remedies cannot be taken to mean that civil remedies are inconsistent with theBank Act, absent a conflict with ss. 16 and 988. In the present appeals there is no such conflict as the Plaintiffs are not seeking to invalidate their contracts. As this Court stated inCanadian Western Bank,at para. 24:". . . constitutional doctrine must facilitate, not undermine what this Court has called 'co-operative federalism'". We conclude that ss. 12 and 272 of the CPA are not inconsistent with ss. 16 and 988 of the Bank Act and do not frustrate any federal purpose. As such, paramountcy is not engaged.